A London-based investor has called for the European Central Bank to block a €2.5bn rights issue at Monte dei Paschi di Siena, arguing the Italian bank is indirectly buying its own shares in the offering.
MPS is paying an unusually high fee of €125mn to eight underwriters on the capital raising, even though the Italian state has committed to buy 64 per cent of the issue and much of the rest has been guaranteed by other investors.
“It is unclear, to say the very least, that a private investor in the position of MPS would provide an underwriting fee of such a scale to others in order to ensure the purchase of unsubscribed shares, and directly or indirectly contribute to the purchaser,” law firm RPC wrote in a letter this week to the ECB’s supervisory board.
In the letter, dated October 25 and seen by the Financial Times, RPC said that it represented a global investor with UK and US operations that had an interest in MPS. The letter complained that the capital raise “is unlawful, the ECB’s authorisation of it should be withdrawn and the rights issue itself should be halted”.
RPC contended that the rights issue was “significantly undersubscribed and can only be completed with the assistance of the underwriting fee”. The law firm did not identify its client nor state whether they had a short position in MPS’s stock.
The ECB declined to comment on the letter. But officials are expected to rebuff the demand to withdraw their authorisation of the Italian bank’s capital raise, according to one person familiar with the matter.
MPS’s woes have been a long-running concern for the ECB, which has for years pushed it to reduce its large portfolio of non-performing loans and to bolster its capital.
Andrea Enria, chair of supervision at the ECB, recused himself from any discussion of MPS over two years ago after his sister-in-law Alessandra Barzaghi joined the Italian bank’s board of directors.
The FT revealed on Wednesday the European Commission is monitoring the rights issue over concerns its structure could constitute illegal state aid. Under EU rules, the state can only take part if all investors — public and private — are subject to the same conditions.
The Italian regulator, Consob, demanded MPS issue a statement highlighting the exceptional fee it was paying the pool of arranger banks, including Bank of America, Citigroup, Credit Suisse and Mediobanca, and alternative investment fund Algebris, as it would affect the bank’s capital buffer targets.
The 576-page capital increase prospectus is only available to investors in Italian.
Bankers close to the negotiations on MPS’s capital increase said the fees it agreed were proportionate to the risk being taken to guarantee the full private investors’ share of the rights issue, or €857mn.
However, the pool of banks have signed sub-underwriting agreements worth at least €410mn with third-party investors, including MPS bondholders, which have committed to buy MPS shares if current shareholders do not exercise their rights to buy the stock during the two-week rights issue.
The UK lawyers also wrote to the European Commission on October 26 and are planning to send letters to the pool of banks arranging the capital increase.
MPS declined to comment.